Currently, the Goods and Services Tax is collected by the Australian Government and distributed to the states and territories under the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (Cwlth). Under the Act, an estimated population for each state is calculated by the Australian Statistician, and funding is allocated using these figures and adjustment factors calculated by the Commonwealth Grants Commission. The Australian Bureau of Statistics produces an estimated resident population figure quarterly by updating census figures according to population changes over the period. Essentially, births are added to the base population, deaths are removed and net migration is added.

The practice of using population figures to determine state funding predates the collection of taxation by the federal (Commonwealth) government. In the first 10 years of Federation, under section 76 of The Constitution, the Commonwealth passed over to the states three quarters of the customs duties collected in a year. The Surplus Revenue Act (no 8) 1910 provided under section 7:

Where in this Act reference is made in relation to any payment or debit, to the number of people of a State, the reference shall be deemed to be to the number of people of the State as was found according to the laws of the Commonwealth by the Commonwealth Statistician as at the thirty first day of December in the financial year in respect of which the payment is to be made.

In 1911 the Commonwealth commenced paying the states annually the sum of 25 shillings per head of population, with allowance for inflation.

In 1927 the Commonwealth and the states entered into a financial agreement where the Commonwealth accepted responsibility for the states debts and £7.5 million was provided towards the payment of interest. Wrangling between the states and the Commonwealth continued until 1933 when the Commonwealth Grants Commission was established to deal with applications from the states for financial assistance under section 96 of the Constitution, and this brought order to Commonwealth-state financial relations.

However, with the outbreak of World War II a threat to national security was apparent following the bombing of Darwin on 19 February 1942 and the Battle of the Coral Sea soon after. Prime Minister John Curtin and Treasurer Ben Chifley foresaw the need to amass the resources of the Commonwealth to meet the expenditure needs during the War. Two Premiers' Conferences in February and May 1942 were held to discuss the introduction of uniform income taxation to be collected by the Commonwealth Government. It would appear that the introduction of uniform income tax met opposition from the states, who claimed it would impinge on state rights. However, new Commonwealth legislation was enacted and from 1 July 1942 the Commonwealth commenced collecting uniform income tax, with the intention of continuing until one year after the end of the war.

Parallel legislation provided for the distribution of financial assistance grants to the states under section 96 of The Constitution 'on such terms and conditions as the parliament thinks fit'. At the time, this assistance was viewed as reimbursement grants for the states who were no longer raising income tax directly. The income tax reimbursement paid to the states was to be £33,489,000 until one year after the war concluded, and entitlement to the grant would be revoked if state income tax was imposed. There was a further reimbursement for entertainment tax of £765,787.

After the death of Prime Minister John Curtin in 1945, Ben Chifley was elected to the position. Chifley was a committed centralist, introducing national projects such as the Snowy Mountains Hydro-electric Scheme, nationalisation of private banks and the assisted immigration program. He also sought to continue collection of income tax by the Commonwealth. In late-1945, nearing the end of the war, the Commonwealth contacted the state Premiers indicating its intention to continue with uniform income taxation and state reimbursement arrangements. The Prime Minister invited state Premiers to indicate whether they had other proposals on how to distribute revenue collected by the Commonwealth.

A Premiers' Conference was held in January 1946 in which the states continued to maintain their opposition to the Commonwealth's proposals. However, it was clear that the Commonwealth was determined to continue uniform taxation and, consequently, the Premiers offered an alternative method by which the grants might be distributed. This proposal involved a complex formula of population, population sparsity, the number of children aged 5-15 years, and an index of income which was later developed into the index of average weekly earnings derived from payroll tax returns. A meeting of officials refined the statistical calculations to be used.

The States Grants (Tax Reimbursement) Act 1946 included the following under section 9:

All statistical and mathematical calculations and determinations required for the purposes of section 6 or section 7 of this Act, including the calculation or determination of -

(a) the populations of the States at any time;

(b) the adjusted populations of the States at any time; and

(c) the average wages per person employed in any year,

shall be made, not later than the thirty-first day of December in the year in respect of which the calculations and determinations are required, by the Commonwealth Statistician,after consultation, where practicable, with the official Statisticians of the States.

The 1946 Act determined grants using two formulas. The first determined the amount of the grant (using total population and average wages) and the second determined the distribution of the grant based on an 'adjusted population', which accounted for the additional financial requirements of sparse populations and school-aged children.

The second formula for distribution of the grants to the states was provided for in section 7 of the Act in three parts. Part A had a schedule of specified grants for 1947 and 1948. Part B provided for the grants in 1949 to 1957 to be incremented according to the proportional distribution of the original £40 million, with any remainder distributed according to the proportion of the adjusted population of the states. Part C distributed funds from 1958 onwards only by the proportion of the adjusted population of the states.

Clearly there were significant responsibilities placed on the Commonwealth Statistician in preparing these calculations and determinations. A census of the population was held in 1947, and the next was not held until 1954. During the intervening years, there was substantial post war migration both internationally and within Australia. Therefore, consultation with the states on population was vital given the concern over states' rights. In a letter to the Premiers of the states of uncertain date, Prime Minister Chifley stressed the importance of improving statistics:

New Statistics required to implement Uniform Tax Proposals.

Arising out of the discussion at the recent Premiers' Conference on the allocation of re-imbursement grants between states partly on the basis of adjusted population including the adjustment for the number of children of school age it will be necessary to obtain the age distribution in each year in each State. An accurate distribution would be greatly facilitated by recording date of birth for all deaths rather than age. Demographic analysis necessary for an Australian population policy would be made easier if this principle was also extended to all vital statistics forms (i.e. births and marriages as well as deaths). This matter was discussed at the recent Statisticians' Conference.

Certain other statistical developments will almost certainly be necessary both for determining the variations in the aggregate re-imbursement grant and the distribution of that grant between states.

It appears there was considerable dispute over the uniform income tax arrangements over the coming years and in March 1959, a special Premiers' Conference was held. At this Conference, several states sought without success to restore their powers to collect income tax directly. On 22 June 1959, in considering a Cabinet Submission for new revenue grants arrangements, Cabinet approved a scheme which allowed for 'population figures for the purposes of the calculation to be simple population figures'.

A further Premiers' Conference was held on 24 and 25 June 1959 at which Treasurer Holt and Acting Prime Minister McEwan proposed the new model for providing financial assistance grants to the states. After protests from New South Wales Premier Cahill and South Australian Premier Playford, an additional amount of money was added for those states and the Premiers agreed to the proposal. The proposal involved use of both the population of the state and average wages.

Section 6 (1) of the States Grants Act 1959 (Cwlth) which was passed through both Houses of Parliament later in 1959 included the following:

All statistical and mathematical calculations and determinations required for the purposes of this Act including the calculation or determination of -

(a) the population of a State on the first day of a year; and

(b) the average wages per person employed in a year.

shall be made not later than the thirty first day of December in the year in respect of which the calculations and determinations are required by the Commonwealth Statistician, after consultation, where practicable, with the official Statisticians of the States.

Subsequent Acts through to the current 1999 Act have retained the use of population figures determined by the Australian Statistician as a basis for allocating state grants. Contemporary communications indicate that Commonwealth Statisticians such as Stanley Carver and Roland Wilson in the 1940s and 1950s had a strong personal involvement in the calculation of population estimates.

References

A New Tax System (Commonwealth-State Financial Arrangements) Act 1999.

National Archives of Australia, A431, Premiers Conference, Canberra, August 1946.

National Archives of Australia, A432 (A432/82), Agendum for Consideration at the Premiers' Conference, January 1946.

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